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12 September, 2006

Back in February, at the very same time that much of the Muslim world was calling for a boycott of Danish goods, there was some (Middle) East meets West business activity taking place that escaped my notice. Harvard Business School Professor Michael Porter, arguably the most influential and widely-read management scholar of the last quarter century, made a visit to Libya.

And what, you might be asking, occasioned a visit to the shores of Tripoli by the world's most famous strategy professor? It was to present to the Libyan government with the results of an in-depth study that Porter and his associates undertook on the Libyan economy. While the specifics of the report have not been made public, several websites have discussed its broad outlines. The Libyan Jamahiriya Broadcasting Corporation described the talk this way:

The competition in the Libya market is positively impact(ing) the Libyan citizens, Professor Michael E. Porter has said. In an interview with Al-Shamis newspaper, Porter expected bright economic future for Libya. Porter presided a team of local and foreign experts to set up a long-term economic strategy for Libya.

According to the BBC, the Porter report is part of a concerted effort on the part of Libya to liberalize its economy and bring about greater prosperity:

Dr Mahamud Al-Ftise, head of the Privatisation Agency, ... is very clear about the advantages (of privatization)..."The first thing is to increase productivity, second is to widen ownership, third thing is to introduce competitiveness so Libyan people will be competitive in their own country and outside," he said.

An article in the Economist entitled "Change is in the air but happens slowly on the ground" noted that while Libya is still very much an authoritarian state and an economic basket case, a discernible shift is underway, a shift taking place amid the back drop of political and foregin policy changes:

From 2003 until his removal this week, a respected American-trained economist, Shukri Ghanem strove, as prime minister, to shift policy towards free trade, privatisation and greater openness. As a result of all this, shoppers in Tripoli, the capital, no longer queue for rations in state-owned stores, but choose what they like from well-stocked private markets.

The article continues noting that one of the biggest stumbling blocks on the path of reform is Qaddafi's infamous "Green Book" :

The peculiar structure of the state lends itself to bumbling. ... Every citizen is expected to join in taking decisions via “popular committees” at local, regional and national level, with powers over such things as business and building permits. But these compete with a raft of other bodies, such as “revolutionary committees” and multiple shadowy security agencies.

Commentary

Of all of the unsettled questions in the social sciences, few are more hotly debated or more desperately in need of definitive resolution than this one: What is (or ought to be) the relationship between the state and the economy. While empirical evidence continues to mount in favor of less centralized control as the best way for creating wealth and accelerating economic growth, just how much or how little state planning is optimal remains open to speculation.

Also open to speculation is the motivation for Colonel Qadaffi's new found embrace of capitalism. Could it be the years of diplomatic isolation coming "as a result of Gaddafi's refusal to allow the extradition to the United States or Britain of two Libyans accused of planting a bomb on Pan Am Flight 103 over Lockerbie, Scotland?" Could the Colonel have been brought to his senses by these remarks made by Britain's Libyan ambassador in the run-up to the March 2004 state visit by Prime Minister Tony Blair?

"35 years of total state control of the economy has left them in a situation where they're simply not generating enough economic activity to give employment to the young people who are streaming through their successful education system. I think this dilemma goes to the heart of Colonel Gaddafi's decision that he needed a radical change of direction."

Perhaps we will never know the reasons for Qadaffi's change of heart. One thing is for certain, however: it is extremely ironic that the man helping to effect the Colonel's conversion, the man spreading the good news of the economic gospel, is a former Reagan economic advisor.

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